UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




(Mark
One)




R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended September 30, 2008




or




£
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the transition period from
__________ to ______________





Commission File
Number:  000-17232





FACT
CORPORATION


(Exact
name of registrant as specified in its charter)





Colorado
            84-0888594(State
      or other jurisdiction of incorporation or organization)
            (I.R.S. Employer Identification
      No.)





1530
      – 9th
      Avenue S.E., Calgary, Alberta
            T2G 0T7(Address
      of principal executive offices)
            (Zip
      Code)





(403)
693-8000


(Registrant’s  telephone
number, including area code)





(Former name, former address and former
fiscal year, if changed since last report)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.                                                                                                                   Yes
R   No
£





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.





Large Accelerated
filer  £                                                                                                Accelerated
filer  £





Non-accelerated
filer                                           £                                           Smaller
reporting Company  R


(Do not check if a smaller reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)


Yes £   No
R





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:





Indicate by check mark whether the
registrant filed all documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.


Yes £   No
£





APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date.




17,154,406
common shares outstanding as of October 31, 2008.










FACT
CORPORATION


TABLE
OF CONTENTS








PagePART
      IItem
      1.   Financial Statements
            3Item
      2.    Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            4Item
      3.   Quantitative and Qualitative Disclosures About Market
      Risk
            7Item
      4T.   Controls and Procedures
            7PART
      IIItem
      1.   Legal Proceedings
            7Item
      1A. Risk Factors
            8Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds
            8Item
      3.   Defaults Upon Senior Securities
            8Item
      4.   Submission of Matters to a Vote of Security
      Holders
            8Item
      5.   Other Information
            8Item
      6.   Exhibits
            9Signatures
            9








2


PART
I




ITEM
1.                                FINANCIAL
STATEMENTS





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 210
8-03 of Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.  All such adjustments are of a normal recurring
nature.  Operating results for the nine month period ended September
30, 2008, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2008.  For further information
refer to the consolidated financial statements and footnotes thereto included in
the Company’s Annual Report on Form 10-KSB for the year ended December 31,
2007.








PageUnaudited
      Consolidated Financial StatementsConsolidated
      Balance Sheets
            F-1Consolidated
      Statements of Operations and Comprehensive Loss
            F-2Consolidated
      Statements of Cash Flows
            F-3Notes
      to Unaudited Consolidated Financial Statements
            F-4
      to F-5








3


FACT
      CORPORATION
                    Consolidated
      Balance Sheets
                    (Unaudited)September
      30,
                    2008
                  
                  
                  December
      31,
                    2007Current
      AssetsCash
                  
                  $
                  99,587
                  
                  
                  $
                  105,053Inventory
                  
                  
                  123,530
                  
                  
                  
                  64,446Accounts
      receivable
                  
                  
                  88,952
                  
                  
                  
                  211,380Total
      Current Assets
                  
                  
                  312,069
                  
                  
                  
                  380,879Investment
      in Capital Reserve Canada Ltd.
                  
                  
                  322
                  
                  
                  
                  322Property
      and EquipmentIntellectual
      property
                  
                  
                  1,061,209
                  
                  
                  
                  1,247,987Real
      Property (net of accumulated depreciation of  $710 ($544 in
      2007))
                  
                  
                  710
                  
                  
                  
                  1,087Total
      Property and Equipment
                  
                  
                  1,061,919
                  
                  
                  
                  1,249,074Total
      Assets
                  
                  $
                  1,374,310
                  
                  
                  $
                  1,630,275LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                  
                  $
                  471,203
                  
                  
                  $
                  369,764Accounts
      payable (related parties)
                  
                  
                  556,214
                  
                  
                  
                  678,304Loans
      payable (related parties)
                  
                  
                  1,112,913
                  
                  
                  
                  993,696Loan
      payable
                  
                  
                  101,108
                  
                  
                  
                  88,525Current
      portion of long-term debt and acquisition cost
                  
                  
                  114,958
                  
                  
                  
                  99,964Total
      Current Liabilities
                  
                  
                  2,356,396
                  
                  
                  
                  2,230,253Long-Term
      LiabilitiesAcquisition
      cost payable
                  
                  
                  1,561,299
                  
                  
                  
                  1,636,050Total
      Long-Term Liabilities
                  
                  
                  1,561,299
                  
                  
                  
                  1,636,050Total
      Liabilities
                  
                  
                  3,917,695
                  
                  
                  
                  3,866,303Commitments
      and contingenciesStockholders'
      DeficitClass
      A Common Stock - authorized 100,000,000 shares of no par value; 17,154,406
      issued and outstanding as at September 30, 2008  and December
      31, 2007
                  
                  
                  23,103,924
                  
                  
                  
                  23,103,924Class
      A Common stock warrants
                  
                  
                  -
                  
                  
                  
                  -Accumulated
      deficit
                  
                  
                  (25,751,863
                  )
                  
                  
                  (25,416,625
                  )Accumulated
      other comprehensive income
                  
                  
                  104,554
                  
                  
                  
                  76,673Total
      Stockholders' Deficit
                  
                  
                  (2,543,385
                  )
                  
                  
                  (2,236,028
                  )Total
      Liabilities and Stockholders' Deficit
                  
                  $
                  1,374,310
                  
                  
                  $
                  1,630,275





The
accompanying notes are an integral part of these consolidated financial
statements.


F-1


FACT
      CORPORATION
                  Consolidated
      Statements of Operations and Comprehensive Loss
                  (Unaudited)For
      the three months ended
                  September
      30,
                
                
                For
      the nine months ended
                  September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007RevenuesFunctional
      food premix
                
                $
                510,837
                
                
                $
                657,646
                
                
                $
                1,549,178
                
                
                $
                2,391,030Rental
      income (net of operating expenses)
                
                
                13,749
                
                
                
                15,735
                
                
                
                42,142
                
                
                
                47,724524,586
                
                
                
                673,381
                
                
                
                1,591,320
                
                
                
                2,438,754Costs
      of Goods Sold – Functional food premix
                
                
                407,073
                
                
                
                563,882
                
                
                
                1,240,307
                
                
                
                2,116,966Gross
      Profit
                
                
                117,513
                
                
                
                109,499
                
                
                
                351,013
                
                
                
                321,788Costs
      and ExpensesLegal
                
                
                17,619
                
                
                
                36,965
                
                
                
                91,423
                
                
                
                96,956Consulting
      fees
                
                
                40,311
                
                
                
                41,193
                
                
                
                128,433
                
                
                
                132,126Depreciation
      and amortization
                
                
                62,336
                
                
                
                62,336
                
                
                
                187,014
                
                
                
                186,996Other
      Administrative expenses
                
                
                46,091
                
                
                
                107,705
                
                
                
                191,628
                
                
                
                237,988Foreign
      exchange loss (gain)
                
                
                13,542
                
                
                
                -
                
                
                
                13,542
                
                
                
                -179,899
                
                
                
                248,199
                
                
                
                612,040
                
                
                
                654,066(Loss)
      from operations
                
                
                (62,386
                )
                
                
                (138,700
                )
                
                
                (261,027
                )
                
                
                (332,278
                )Other
      income and expensesInterest
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7Gain
      (loss) on disposal of marketable securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,127Tax
      (Paid) /refunded
                
                
                309
                
                
                
                1,496
                
                
                
                -
                
                
                
                (717
                )Interest
      expense
                
                
                (25,669
                )
                
                
                (23,570
                )
                
                
                (74,211
                )
                
                
                (67,499
                )(25,360
                )
                
                
                (22,074
                )
                
                
                (74,211
                )
                
                
                (61,082
                )Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      (Loss)
                
                $
                (87,746
                )
                
                $
                (160,774
                )
                
                $
                (335,238
                )
                
                $
                (393,360
                )Net
      (Loss) per Common Share, basic and diluted
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.02
                )
                
                $
                (0.02
                )Weighted
      Average Number of Common Shares Used in Calculation
                
                
                17,154,406
                
                
                
                17,154,406
                
                
                
                17,154,406
                
                
                
                17,154,406Comprehensive
      lossNet
      loss
                
                $
                (87,746
                )
                
                $
                (160,774
                )
                
                $
                (335,238
                )
                
                $
                (393,360
                )Foreign
      currency translation adjustment
                
                
                21,170
                
                
                
                (16,013
                )
                
                
                27,881
                
                
                
                (32,495
                )Comprehensive
      loss
                
                $
                (66,576
                )
                
                $
                (176,787
                )
                
                $
                (307,357
                )
                
                $
                (425,855
                )





The
accompanying notes are an integral part of these consolidated financial
statements.


F-2





FACT
      CORPORATION
                  Consolidated
      Statements of Cash Flows
                  (Unaudited)For
      the nine months ended
                  September
      30,2008
                
                
                2007Cash
      From Operating Activities:Net
      (loss)
                
                $
                (335,238
                )
                
                $
                (393,360
                )Reconciling adjustmentsDepreciation,
      depletion and amortization
                
                
                187,014
                
                
                
                186,996Accrued
      interest
                
                
                74,205
                
                
                
                67,500Loss
      (Gain) on sale of securities
                
                
                -
                
                
                
                (7,127
                )Changes in operating assets and
      liabilitiesAccounts
      receivable
                
                
                86,033
                
                
                
                291,005Inventory
                
                
                (59,084
                )
                
                
                6,550Prepaid
      Expense
                
                
                36,263
                
                
                
                -Accounts
      payable and accrued expenses
                
                
                (9,514
                )
                
                
                (155,354
                )Net
      Cash Flows Used In Operating Activities
                
                
                (20,321
                )
                
                
                (3,790
                )Cash
      From Investing Activities:Proceeds
      from sale of securities
                
                
                -
                
                
                
                23,478Net
      Cash Flows From Investing Activities
                
                
                -
                
                
                
                23,478Cash
      From Financing Activities:Loan
      proceeds (repayment)
                
                
                (5,921
                )
                
                
                -Loan
      proceeds (repayment)  related party loans
                
                
                64,324
                
                
                
                (69,302
                )Acquisition
      cost payable
                
                
                (59,757
                )
                
                
                (57,646
                )Net
      Cash Flows Used In Financing Activities
                
                
                (1,354
                )
                
                
                (126,948
                )Foreign
      currency translation adjustment
                
                
                16,209
                
                
                
                (31,973
                )Net
      change in cash and cash equivalents
                
                
                (5,466
                )
                
                
                (139,233
                )Cash
      at beginning of period
                
                
                105,053
                
                
                
                212,571Cash
      at end of period
                
                $
                99,587
                
                
                $
                73,338Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                14,392
                
                
                $
                26,347Income
      taxes paid (refund)
                
                
                (308
                )
                
                
                717





The
accompanying notes are an integral part of these consolidated financial
statements.





F-3


FACT
CORPORATION


Notes
to the Consolidated Financial Statements for the nine months ended September 30,
2008


(Unaudited
– prepared by Management)





Note
1- Basis of presentation





The
accompanying unaudited condensed consolidated financial statements of FACT
Corporation (the “Company”) have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The financial statements should be read in conjunction with the
Company’s audited consolidated financial statements for the year ended December
31, 2007.





The
interim financial statements present the balance sheet, statements of operations
and cash flows of FACT Corporation. The financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States.





The
interim financial information is unaudited.  In the opinion of
management, all adjustments necessary to present fairly the financial position
as of September 30, 2008, and the results of operations, and cash flows
presented herein have been included in the financial statements. All such
adjustments are of a normal and recurring nature.  Interim results are
not necessarily indicative of results of operations for the full
year.





Note
2 – Recently Issued Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), BUSINESS
COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, at their fair values as of the acquisition
date, with limited exceptions. This revision also requires that
acquisition-related costs be recognized separately from the assets acquired and
that expected restructuring costs be recognized as if they were a liability
assumed at the acquisition date and recognized separately from the business
combination. In addition, this revision requires that if a business combination
is achieved in stages, that the identifiable assets and liabilities, as well as
the noncontrolling interest in the acquiree, be recognized at the full amounts
of their fair values. The Company is currently not pursuing any business
combinations and does not plan to do so in the future, so this statement likely
will not have any impact on the Company.





In
December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB No. 51.
The objective of this statement is to improve the relevance, comparability, and
transparency of the financial statements by establishing accounting and
reporting standards for the Noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company believes that this statement will
not have any impact on its financial statements, unless it deconsolidates a
subsidiary.




In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (An amendment to SFAS No. 133). This
statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 and requires enhanced
disclosures with respect to derivative and hedging activities. The Company will
comply with the disclosure requirements of this statement if it utilizes
derivative instruments or engages in hedging activities upon its
effectiveness.





In
April 2008, the FASB issued FASB Staff Position No. 142-3,
DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to
improve the consistency between the useful life of a recognized intangible asset
(under SFAS No. 142) and the period of expected cash flows used to measure
the fair value of the intangible asset (under SFAS No. 141(R)). FSP
No. 142-3 amends the factors to be considered when developing renewal or
extension assumptions that are used to estimate an intangible asset’s useful
life under SFAS No. 142. The guidance in the new staff position is to be
applied prospectively to intangible assets acquired after December 31,
2008. In addition, FSP No. 142-3 increases the disclosure requirements
related to


F-4


FACT
CORPORATION


Notes
to the Consolidated Financial Statements for the nine months ended September 30,
2008


(Unaudited
– prepared by Management)





Note
2 – Recently Issued Accounting Pronouncements (continued)





[continued.....]
renewal or extension assumptions. The Company does not believe implementation of
FSP No. 142-3 will have a material impact on its financial
statements.





In May
2008, the FASB issued Statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.  This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  This statement is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “the Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”





In May
2008, the FASB issued Statement No. 163,ACCOUNTING FOR FINANCE
GUARANTEE INSURANCE CONTRACTS – AN INTERPRETATION OF FASB STATEMENT NO. 60.The premium revenue
recognition approach for a financial guarantee insurance contract links premium
revenue recognition to the amount of insurance protection and the period in
which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation.  This
Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008.





In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN
SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No.
03-6-1”).  Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements.





None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company's future financial reporting.





Note
3 – Subsequent Events





On
October 10, 2008, the Company granted a total of 1,500,000 stock options to
officers and directors of the Company, exercisable into shares of Class A common
stock at $0.33 per share.   The options were granted under the
Company’s 2008 Stock Option and Stock Award Plan.  On September 25,
2008 the Company’s Board of Directors canceled all previously approved stock
option plans.  No options remained available for exercise under any of
the Company’s previously approved stock option and award plans at the time of
cancelation.





F-5


ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS




This
quarterly report contains forward-looking statements relating to future events
or our future financial performance.  In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "intends",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential", or "continue" or the negative of these terms or other comparable
terminology.  These statements are only predictions and involve known
and unknown risks, uncertainties and other factors which may cause our or our
industry's actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed
or implied by these forward-looking statements.






Such
factors include, among others, the following:  international, national
and local general economic and market
conditions:  demographic  changes; the ability of the
Company to sustain,  manage or  forecast  its
growth;  the ability of the Company to successfully make and integrate
acquisitions;  raw material costs and availability;  new
product  development
and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of
significant customers or
suppliers;  fluctuations  and  difficulty in
forecasting  operating  results; changes in business
strategy or
development  plans;  business  disruptions;  the
ability  to
attract  and  retain  qualified  personnel;  the  ability
to protect technology; and other factors referenced in this and previous
filings.






Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity or
performance.  Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.





Given
these uncertainties, readers of this Form 10-Q and investors are cautioned not
to place undue reliance on such forward-looking statements.  The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.




All
dollar amounts stated herein are in US dollars unless otherwise
indicated.





The management’s discussion and analysis of our
financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP").  The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited consolidated financial statements for
the years ended December 31, 2007, and 2006, together with notes thereto. 
As used in this quarterly report, the terms "we", "us", "our", and the "Company"
mean FACT Corporation, unless the context clearly requires
otherwise.





General
Overview





FACT
Corporation predominantly operates in the functional food industry through its
wholly owned subsidiary, Food and Culinary Technology Group Inc., (“FACT Group”)
developing, licensing and supplying turnkey functional bake mixes to customers
who manufacture, distribute, and market bakery and pasta products to consumers
through a variety of conventional and alternative channels including retail,
food service and specialty markets.   Presently the Company’s
primary revenue stream is generated by the sale of these functional bake mixes
in a wholesale format.





The
Company also has minimal operations through its wholly owned subsidiary, Wall
Street Real Estate Investments Ltd. which generates revenues through the rental
and sub-lease of office space in Calgary, Alberta.





The
Company further has one dormant subsidiary, FACT Products, Inc., which holds the
proprietary rights to an Italian crème product, not currently in
production.





4


Executive
Summary





·
            Net
      revenues in the nine months ended September 30, 2008 increased by 9% over
      the comparative periods despite a substantial reduction to gross
      revenues;





·
            Operating
      expenses for the nine months ended September 30, 2008 decreased by 6.4%
      over the comparative periods predominantly as the result of a decrease to
      travel and promotional expenses related to attendance at trade shows and
      investment conferences in fiscal 2007 with no similar expenditure in
      fiscal 2008;





·
            The
      Company’s net loss for the nine months ended September 30, 2008 decreased
      by 15% over the comparative periods predominantly as a result of decreased
      operating expenses and increased net
revenues.





Discussion and
Analysis





Commodity
Trends





FACT
Corporation and our contracted blending facilities are purchasers of wheat,
corn, soybean, sugar, alternative sweeteners and certain other commodities which
are used in the manufacture of our functional bake mixes.  We also
contract with trucking companies for the transportation of our wholesale goods,
as well as warehouses for storage of our products, both of which use gas and/or
natural gas.  FACT and its contracted suppliers monitor worldwide
supply and cost trends of commonly used commodities in an attempt to secure
favorable pricing and mitigate the impact of fluctuating prices of high usage
commodities.





During
the nine months ended September 30, 2008, aggregate commodity costs continued to
increase as a result of higher dairy, cocoa, wheat and sugar costs.
Transportation costs remained high as a result of increasing gas prices and
transportation surcharges levied by our contracted logistics
companies.  Accordingly the cost of the Company’s wholesale blended
products experienced further increases, and a percentage of the increase in
costs was passed along to our customers to mitigate the dramatic increases to
ingredient prices and transportation costs.





We expect
the higher cost environment to continue, particularly for dairy, grains and
energy.  We will endeavor to pass those costs along to our customers
by way of increased pricing, however, we cannot be assured that we will be able
to pass along all of the increased costs and maintain our current
business.  Therefore, if we cannot pass along the costs the increase
in the price of commodities may impact on our bottom line profits.





Dependence On One or a Few
Major Customers





The
Company’s revenues for fiscal years ended December 31, 2006 and 2007 and to the
date of this report rely heavily on sales made to two (2) key customers: Western
Bagel Baking Corporation of Van Nuys, California and Prince Donuts Inc. of
Linden, NY.  Together these two (2) customers account for
approximately ninety nine per cent (99%) of premix sales.  During the
nine months ended September 30, 2008  sales to key customer Prince
Donuts were reduced by 63% as compared to sales over the same period in the
prior fiscal year, while sales to customer Western Bagel Baking corporation rose
by 26% over the comparative period.  During March 2008, FACT customer
Prince Donuts advised the Company of a hold on future purchases while
extraordinarily high inventory levels required reduction for certain of their
customer base.   The Company was advised this hold on purchases
would remain in effect until mid May 2008, at which point high inventory levels
should have normalized and regular order volumes should continue.  In
fact, customer Prince Donuts did not order any products from FACT Group during
the second quarter of this current fiscal year as a result of this hold on
purchases.  Subsequent to June 30, 2008 Prince Donuts resumed orders,
though during the three month period ended September 30, 2008, order volumes
were approximately 50% as compared to the three months ended September 30,
2007.  FACT Group is actively working to successfully close additional
client accounts that should assist in better diversifying our revenue base and
address the negative impact of such heavy reliance on a few major
customers.  It is anticipated that until such time as FACT establishes
a more diverse range of products in the marketplace, it will remain reliant on a
small number of key customers to drive sales.  A loss of any one of
these customers without identifying new customers could seriously impact on our
business.





5


Liquidity
and Capital Resources





Summary of Working Capital
and Stockholders' Equity





As of
September 30, 2008, the Company had negative working capital of $2,044,327 and
negative Stockholders' Equity of $2,543,385 compared with negative working
capital of $1,849,374 and negative Stockholders' Equity of $2,236,028 as of
December 31, 2007.  The Company’s negative working capital has
increased as a result of the reduction to accounts receivable and the increase
to current loans and accounts payable over the current fiscal year.





Liquidity





The
Company believes that cash from operations and existing credit facilities
currently provide sufficient liquidity to meet our present working capital
needs, including debt servicing obligations. In order to implement our 2008
through 2010 plans for growth, our debt retirement plans and other expansion
plans,  the Company anticipates it may require between $1,000,000 and
$5,000,000 over the next three years to fully implement its business plan, which
includes significant marketing efforts, the continued development and refinement
of functional food formulations and products, a consumer awareness and public
relations campaign, concepts for development, manufacturing and distribution of
master brand food products, expanded management resources and support staff, and
other day to day operational activities.  Depending on the success of
each segment of the staggered implementation of our growth initiatives the
Company will require varying amounts of funds over the next three years in order
to realize its goals. Should the Company fail to achieve anticipated bench marks
over the 2008, 2009 and 2010 fiscal years, the amount of capital required will
be reduced accordingly.  The amount and timing of additional funds
required can not be definitively stated as at the date of this report and will
be dependent on a variety of factors.  As of the filing of this
report, the Company has been successful in raising funds required to meet any
revenue shortfalls with respect to the funding of our
operations.  Funds have been raised through private loans, equity
financing and conventional bank debt, as well as through the sale of certain
active and passive investments.  The Company anticipates revenues
generated from its functional food business will greatly reduce the requirement
for additional funding as we implement our growth initiatives; however, we can
not be certain the Company will be successful in achieving revenues from those
operations.  Furthermore the Company can not be certain that we will
be able to raise any additional capital to fund our ongoing operations, if and
when required.





Sources of Working
Capital





During
the nine months ended September 30, 2008 the Company's primary sources of
working capital have come from revenues generated from our functional foods
business, monthly rental income and the net proceeds from:




·
            $64,324
      in loan proceeds from arms length third
parties.




Material Commitments for
Capital Expenditures





Pursuant
to a settlement agreement entered into between FACT LLC and Steven Schechter,
Jennifer Flynn and Steven Capodicasa, FACT Group has an obligation to pay a
total of $2,000,000 in royalty payments over 10 years.   As at
September 30, 2008 the remaining balance due with respect to this obligation
totaled $1,676,257.  The obligation has been paid from the Company’s
revenues and the Company anticipates it will continue to be able to pay this
obligation from revenues.





Results
of Operations





Comparison of nine month
periods ended September 30, 2008 and 2007





For the
nine month periods ended September 30, 2008 and 2007, the Company incurred
operating losses of $261,027 and $332,278 respectively.  Legal fees
decreased slightly from $96,956 (2007) to $91,423 (2008) and consulting fees
also decreased from $132,126 (2007) to $128,433 (2008) as certain public
relations consulting services which had been in place during the prior
comparative fiscal period were not required during the current fiscal period
ended September 30, 2008.   Administrative expenses decreased
over the respective periods from $237,988 (2007) to $191,628 (2008) as the
Company did not undertake trade shows and investor presentations, greatly
reducing associated travel and attendance costs during the current
period.  Fiscal 2008 operations reflect a decrease in gross revenues
from $2,438,754 (2007) to $1,591,320 (2008).  This decrease in
revenues can be attributed directly to a shortfall in orders from one of the
Company’s key customers as a result of high inventory


6


levels
which negated the need for further product purchases during the second quarter
of fiscal 2008.  Associated costs of goods sold relating to functional
premix sales decreased accordingly from $2,116,966 (2007) to $1,240,307
(2008).  The Company’s gross margin on the sale of functional bake
mixes increased over the respective periods as the Company’s sales to customers
with higher gross margins made up an increased portion of overall sales during
the period.





During
the nine months ended September 30, 2008 the Company recorded a loss on foreign
exchange totaling $13,542 with no similar entry for the nine months ended
September 30, 2007.  Depreciation and amortization expenses remained
constant during the comparative three month periods totaling $186,996 (2007) and
$187,014 (2008) as the Company recorded recurring expenses related to the
amortization of its intellectual property and fixed assets in the normal course
of business.





During
the nine months ended September 30, 2007, the Company liquidated certain of its
marketable securities and recorded a gain of $7,127 with respect to the sale of
certain of these securities with no comparative entry during the current fiscal
period.





Interest
expense increased over the comparative nine months ended September 30, 2008
totaling $67,499 (2007) and $74,211 (2008).  During the nine months
ended September 30, 2007 the Company’s subsidiary Wall Street paid income taxes
of $717 with no comparative entry for fiscal 2008.





Net
losses for the two completed nine month periods were $393,360 (2007) and
$335,238 (2008) respectively.





Off-
      Balance Sheet Arrangements





The
Company presently does not have any off-balance sheet arrangements.








ITEM
3.                      QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable





ITEM
4T.                      CONTROLS
AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (Exchange Act), as of September 30, 2008.  Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to our Company required
to be included in our reports filed or submitted under the Exchange
Act.





Changes
in Internal Controls





There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls over
financial reporting that occurred during the quarter ended September 30, 2008,
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.





PART
II – OTHER INFORMATION




ITEM
1.  LEGAL PROCEEDINGS





The
Company is presently involved in certain litigation more particularly described
in our Form 10-KSB for the fiscal year ended December 31, 2007, as filed with
the Securities and Exchange Commission on April 15, 2008.





7


ITEM
1A.                      RISK
FACTORS





Not
Applicable





ITEM
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





Not
Applicable








ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





Not
Applicable





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





The
Annual General Meeting of Shareholders was held on September 25, 2008, at which
the following items were voted upon:





a)
            The
      shareholders fixed the number of directors at three (3) and elected the
      Members of the Board of  directors for the ensuing
      year:





Voting Results
            For
            Against
            AbstainTo
      fix the number of directors at three (3)
            11,487,483
            0
            0





b)       The
following directors were elected to the board of directors to hold such position
until the next annual meeting of the shareholders or until their successor is
duly elected and qualified:





Voting Results
            For
            WithholdJacqueline
      Danforth
            11,487,483
            0Paul
      Litwack
            11,487,483
            0Brian
      Raines
            11,487,483
            0





c)           The
shareholders ratified the appointment of Child, Van Wagoner & Bradshaw, PLLC
as the Company’s auditors for the fiscal year 2008.





Voting Results
            For
            Against
            AbstainTo
      appoint Child, Van Wagoner & Bradshaw, PLLC as the Company’s
      auditors
            11,487,483
            0
            0





d)           The
shareholders approved the 2008 Stock Option and Stock Award Plan (the “Plan”) of
up to 2,000,000 shares of the Company’s common stock in the form of stock
options and stock awards as compensation to employees, officers, directors
and/or consultants of the Company.





Voting Results
            For
            Against
            AbstainTo
      approve the 2008 Stock Option and Stock Award Plan
            11,487,483
            0
            0





There
were no abstentions or broker non-votes on any matters put before the Annual
Meeting.







ITEM
5.  OTHER INFORMATION





On
October 10, 2008, the Company granted a total of 1,500,000 stock options to
officers and directors of the Company, exercisable into shares of Class A common
stock at $0.33 per share.   The options were granted under the
Company’s 2008 Stock Option and Stock Award Plan.


8


ITEM
6.                      EXHIBITS







REGULATION
      S-K NUMBER
            EXHIBIT
            
            REFERENCE3.1(i)
            Articles
      of Incorporation, as amended
            
            Incorporated
      by reference to the Exhibits previously filed with Capital Reserve
      Corporation’s Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 19903.1(ii)
            Articles
      of Amendment to Articles of Incorporation, filed with the State of
      Colorado Secretary of State on November 26, 2001
            
            Incorporated
      by reference to the Exhibits previously filed with FACT Corporation’s
      Annual Report for Form 10-KSB for the fiscal year ended December 31,
      20023.1(iii)
            Articles
      of Amendment to Articles of Incorporation, filed with the State of
      Colorado Secretary of State on February 8, 2002
            
            Incorporated
      by reference to the Exhibits previously filed with FACT Corporation’s
      Annual Report for Form 10-KSB for the fiscal year ended December 31,
      20023.2
            Amended
      Bylaws
            
            Incorporated
      by reference to the Exhibits previously filed with Capital Reserve
      Corporation’s Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 199410.1
            2008
      Stock Option and Stock Award Plan
            
            Incorporated
      by reference to the Exhibits previously filed with FACT Corporation’s
      Definitive 14C on August 22, 2008.31(i)(ii)
            Section
      302 Certification - Principal Executive Officer and Principal Financial
      Officer
            
            Filed
      herewith32
            Certification
      Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
            
            Filed
      herewith









SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 13th day of
November, 2008.





FACT
CORPORATION








By: /s/ Jacqueline
Danforth


Name:
Jacqueline R. Danforth


Title:  President,
Principal Executive, Financial and Accounting Officer







9